As Stryker boosted by electives comeback, CEO downplays delta variant risk to procedures

Dive Brief:

Stryker on Tuesday reported second-quarter results that beat Wall Street expectations, citing an accelerating rebound in elective procedures as global economies reopened due to the moderating pandemic.
The Kalamazoo, Mich.-based orthopaedic device maker said its neurovascular, Mako robot, emergency care, sports medicine and U.S. shoulder and ankle businesses all posted double-digit growth in the quarter, and sales of its hip and knee implants returned to growth. "All told, we cannot find much fault in the quarter, and SYK continues to operate as a well-oiled machine," analysts at BTIG said in a note to clients.
Stryker CEO Kevin Lobo said during a Tuesday earnings call that the positive momentum and a strong order book across its capital businesses gave the company increased confidence in its full-year outlook, and it narrowed its forecast for organic sales growth to 9% to 10% over 2019, the upper end of its prior range.

Dive Insight:

Stryker is the latest medtech to report a strengthening recovery in its business from the coronavirus pandemic in the second quarter, along with peers including Boston Scientific, Johnson & Johnson, Intuitive Surgical and Abbott Laboratories. Hip and knee replacements were especially hard hit in 2020 during the global health crisis and have lagged other surgical procedures coming out of it.

The increase in demand for those procedures is a positive sign for the medtech rebound. "These are deferrable procedures that need to be done at some point," Lobo told analysts on the company's earnings call.

Still, the emergence of the delta variant adds new uncertainty to the medtech procedure recovery. Jefferies analysts wrote the slower resumption of Stryker's orthopaedic procedures and risk from coronavirus variants were constraints on the company's full-year outlook.

However, Lobo said the variable is "baked in" to the company's forecast and downplayed the risk that the variant could shut down procedures.

"With the delta variant, you're starting to see pockets of disruption. But overall, the hospitals are very capable of being able to deal with this," the CEO said.

Stryker said strong demand for procedures using the company's Mako surgical robot was a big factor in its U.S. sales recovery. The Jefferies analysts noted Stryker does not see J&J's Velys system launch during the quarter or competition from Zimmer Biomet's Rosa platform as slowing Mako's momentum. But Stryker is likely to cede some market share as the competitive field tightens, they said.

Stryker executives said the integration of Wright Medical, which the company acquired last year for $4 billion, is ahead of expectations and helped support its decision to boost its full-year adjusted earnings forecast to a range of $9.25 to $9.40 per share.

The worldwide trauma and extremities business, including Wright, grew 7% in the quarter, compared to 2019.

Overall, Stryker posted net sales of $4.3 billion in the quarter, an increase of 55.4% from 2020 and 17.6% over 2019's second-quarter result. Net earnings of $592 million increased from a loss of $83 million in the same quarter a year ago.

Analysts at Truist said the Wright integration, competition in robotics and uncertainty about the strength of the capital spending environment could pose risks for Stryker in the second half of the year.

"While this was clearly a strong quarter for Stryker, we continue to believe in our thesis that the next couple of quarters could be noisy as the company balances initiatives across its business," the analysts wrote in a note to clients.